Himanshu, if it is a Zerodha specific question, it is best to email [email protected] with your client ID, so someone can get you back with the exact reason.
But yes generally if you short a stock and stock hits upper circuit, there will be be no sellers and hence you will not be able to buy back the shares you have shorted. This could lead into short delivery.
Check this post on Short delivery.
There are scrips for which there is a daily limit, upper and lower. You can see these limits in the scrip information. So before the scrip hits the upper circuit, you need to square off. Scrips under derivative segment F&O has no such limits.
http://zerodha.com/z-connect/queries/stock-and-fo-queries/consequences-of-short-delivery-nse-bse
The cause of scrip vanishing from your trading terminal is that it has reached its maximum price, what is set my NSE for today. Upper Circuit Limit. It will be released by next day or so.
The effect of this would be, that you will not be able to buy back the shares, so in auction market equivalent shares will be bought by NSE and forcefully given to you at whatever price it gets. You will be charged with a penalty. If the auction price is less compared to the market, you will be in some benefit. These things are explained in the above link.